Number of buy-to-let products increases

Buy-to-let mortgage offers in quarter two 2011:

Q2 2011

- Average loan size: £138,525.80

- Average loan-to-value: 67.17%

- Average chosen fixed rate: 4.82%

- Average chosen tracker rate: 4.02%

Q1 2011

- Average loan size: £136,359.75

- Average loan-to-value: 66.35%

- Average chosen fixed rate: 5.00%

- Average chosen tracker rate: 4.20%

Change during Q2 2011

- Average loan size: +£2166.05 (1.59%)

- Average loan-to-value: +0.82%

- Average chosen fixed rate: -0.18%

- Average chosen tracker rate: -0.18%

Andy Young, chief executive at TBMC comments on the Index’s findings:

Product choice and average loan sizes continue to improve

“The buy-to-let mortgage market has continued to develop during the second quarter of 2011 with a greater number of products now available to landlords. In fact, during Q2 the number of mortgage schemes on TBMC’s dedicated buy-to-let sourcing system grew by an impressive 25% compared with the previous quarter.

“Average loan sizes also increased by a further £2166 during Q2, following on from the £6214 increase in the previous quarter, representing growth of 6.4% since the beginning of the year. This is mainly due to the greater number of lenders offering higher loan-to-value (LTV) mortgages and the availability of finance for Houses in Multiple Occupation (HMOs), which tend to be higher value properties.”

“According to the Index, over 50% of buy-to-let offers processed by TBMC during Q2 were for loans of over 70% LTV, resulting in an average LTV of 67% for the period. The increase in rents during the period has also enabled landlords to obtain higher LTV deals.”

Tracker products favoured as average rates drop

“The Index shows that average rates fell during the second quarter of this year, following the rise in the previous quarter.

"This reflects the weight of opinion in the City that any rise in the Bank of England Base Rate is likely to happen much later in the year than previously expected, and perhaps not until 2012. For buy-to-let mortgage offers received by TBMC during Q2, the average fixed rate was 4.82% and the average variable rate was 4.02%.”

“The expectations of the City regarding interest rate rises are mirrored by the product choice of buy-to-let property investors during Q2, with variable rate products accounting for 59% of applications received by TBMC compared with 41% for fixed rates.

"Variable rates are also popular amongst landlords as they often present the most achievable rental calculations in the marketplace.”

Healthy rental yields provide stability and opportunity

“As the demand for rental property remains high, rental income has too, delivering healthy rental yields for landlords. The Index shows that for Q2 2011, average rental yields across the UK were 6.25%. This is excellent news for existing landlords, providing them with stability in their investments, and also offers encouragement and opportunity for new investors in the buy-to-let sector.”

Property and tenant type determines rental yield

“Rental yields vary greatly from region to region and also depend upon the type of property and tenant. The Index looked at some of the top locations for buy-to-let investment including London, Bristol, Coventry, Chester, Southampton, Cardiff and Sheffield.

“The Index shows that on average, terraced houses offer the biggest rental yields (6.65%), followed by flats (6.06%). It also shows that student tenants generate the highest yields (7.52%), because student properties are often let out on a room-by-room basis.

"The next highest yields are provided by families (6.32%) and professionals (5.89%). Students in terraced houses produce the greatest yield of all (7.77%).”

Conclusion

As UK Plc remains fragile, the buy-to-let mortgage market has stabilised and there are some great deals currently available to residential property investors.

With high tenant demand and good rental yields, there are plenty of opportunities in the buy-to-let sector. By carefully researching the area and property they choose to invest in, landlords have reason to feel confident about obtaining a decent return.